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Still going strong

28 October 2004 Angelo Coppola

According to the latest monthly Absa House Price Index, nominal year-on-year growth of 33,7% was recorded in house prices in September 2004.

Jacques du Toit, senior economist at Absa Group Economic Research, says that this was the highest nominal growth in any month since November 1981.

The revised growth for August came to 34%.

The year-on-year growth during the first nine months of the year averaged 31,4%. In real terms, year-on-year growth of 32,7% was recorded in August compared with a revised 30,9% in July.

The real growth in house prices is based on the most recent headline consumer price inflation figure, which measured 1,0% year-on-year in August.

The average real year-on-year growth during January to August 2004 was 30,9%, which is based on a headline CPI inflation rate of 0,7% on average during this period.

The abovementioned strong growth in house prices during the course of 2004 was driven by various factors, including the lowest interest rates in more than 20 years.

This had a significant positive effect on the affordability of housing, with the average monthly repayment being generally lower than a year ago, despite the sharp price rises over this period.

In addition to the impact of lower interest rates, household income increased during this period, further supporting the affordability of housing. However, with interest rates probably now near the lower turning point, stable, and especially higher interest rates, coupled with continuously growing property prices, will lead to higher mortgage repayments.

This will have a negative effect on the affordability of housing, which will eventually feed through to lower growth in property prices.

Changes to the Absa House Price Index South African residential property market has recorded strong growth since the beginning of 2000.

After a long period of mediocre growth in house prices from the mid-1980s up to the end of the 1990s, relatively strong growth in both nominal and real terms was recorded during the past four years and nine months.

Over this period, growth in house prices remained positive in real terms, which was the longest period of uninterrupted real growth since the early 1980s, when the residential property market also experienced a strong boom phase.

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